Congestion Tolling and Urban Spatial Structure

Arnott, Richard · 1998 · Crossref

DOI: 10.1111/0022-4146.00105

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Summary

This paper challenges the conventional wisdom that congestion tolling inevitably leads to a more concentrated urban spatial structure. While standard urban economic models predict that tolls increase transport costs for suburban residents, thereby steepening rent and density gradients, this study incorporates the "bottleneck model" of traffic congestion. This model, which accounts for trip-timing decisions and schedule delay costs, suggests that optimal tolling may have negligible or even dispersion-inducing effects on urban structure, depending on revenue redistribution. The author employs a simplified monocentric city model consisting of two islands—downtown and suburbia—connected by a congestible causeway. The analysis compares two congestion technologies: the standard model, where travel costs depend solely on traffic volume, and the bottleneck model, where equilibrium requires equalized trip prices (including queuing time and schedule delay) across departure times. The study examines both "open city" scenarios (variable population, fixed utility) and "closed city" scenarios (fixed population), analyzing the effects of optimal Pigouvian tolls with and without the redistribution of toll revenues and land rents. The findings reveal a stark contrast between the two models. In the standard model, congestion tolls increase the effective cost of living in suburbia, causing suburban population to decline and lot sizes to increase, thus steepening the density function and concentrating the city. However, in the bottleneck model, an optimal time-varying toll eliminates queuing costs without altering the total trip price, as the efficiency gains exactly offset the toll revenue. Consequently, in the absence of income effects from revenue redistribution, optimal tolling has no effect on urban spatial structure. Numerical simulations confirm that without redistribution, the bottleneck model yields no change in population distribution or density steepness, whereas the standard model shows significant concentration. The significance of these results lies in the nuanced role of income effects. When toll revenues are redistributed, the bottleneck model can actually lead to a more dispersed urban structure, particularly in closed cities, because the income effect flattens the density function while the substitution effect remains neutral. The paper concludes that while the true effect likely lies between the two extremes, congestion tolling probably causes less spatial concentration than previously believed. This implies that the absence of tolling may have led to less excessive decentralization than standard models suggest, highlighting the importance of considering dynamic trip-timing decisions in urban policy analysis.

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